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Saturday, July 26, 2008

Dorothea Lange Don't Stop Believing November 1936Eighty-year-old woman living in squatters' camp on the outskirts of Bakersfield, California. "If you lose your pluck you lose the most there is in you -- all you've got to live with."

Ilargi: Call it the modern form of trickle-down economy. A growing -albeit still small- part of the population may be clueing in to what is happening on Wall Street, but that remains a conveniently distant world.

But now it's getting real. And a lot closer. Now the consequences of trillions of dollars in vanished housing "values", $480 billion in writedowns for the big banks, as well as mind-boggingly large amounts of taxpayer-funded "rescue" missions to save them, are starting to trickle down and sink in.

People are beginning to find that their pension funds were among the heaviest investors in the securities and derivatives that necessitate the write-downs and rescues. The average losses on the paper are huge, and their value will soon approach zero.

Yesterday, the National Australia Bank stated it will write down 90% of the "value" of its US housing-related paper. If pension funds in the US and around the globe would follow the NAB’s example, trillions of dollars in assumed value would vanish overnight. Still, whether they recognize it publicly or not, the paper is worthless, and there’s no realistic prospect for it to regain -any of- its value.

So there goes your pension.

The next step in the trickle ladder becomes visible in governments of all levels, shapes and sizes, around the western world. They all face the same set of unwelcome and inevitable developments. Employees’ contracts are full of clauses that assure annual payrises, cost of living adjustments, full medical benefits and luxurious pensions arrangements.

At the same time, however, the tax revenues that are supposed to pay for it all are falling like clay pigeons. Local and state governments typically get a huge chunk of their money from property- and sales taxes. But as home prices plummet, so will property taxes, leaving people with much less disposable income to buy the things that generate sales taxes.

Moreover, bonds, the instruments that have facilitated day-to-day financial operations, are disappearing. Municipal and state bonds are looked upon with very suspicious gazes by investors, and that’ll only get worse as tax revenues drop. The bonds that do still find buyers require much higher interest rates.

And it doesn’t stop there either: the funds that these levels of government did manage to save over the past 20 years or so were largely invested in the same rotten Wall Street paper that the pension funds are in. The majority hold a lot of Fannie and Freddie shares, for instance. Which lost most of their value. Plus mortgage-backed securities. Which lost about all of their value.

And no, the Treasury bail-out of the two firms will not lift that value: as in the Bear Stearns scenario, shareholders will be left with empty bags in empty hands.

Since the employee contracts cannot realistically be renegotiated, there is only one solution: bankruptcy. A government bankruptcy doesn’t stop all operations, as is the case with the private sector. But when they are restarted, it will be under some form of conservatorship, and all benefits, pensions, everything, will have vanished.

So there goes your job.

A few lucky ones wil be rehired at a fraction of their former pay, the rest will be forced to sit in their homes that lose value at accelerating rates, and which they will no longer be able to afford without a paying job. Which in turn will lead to a massive drop in income tax renevues, which will lead to similar constructions at state and federal governments. And you can guess where that will lead.

Our disfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion in the past three months -- a cheer went up, and so did the Dow. Only $2.5 billion; people were afraid the losses would be much higher. Happy days are here again.

There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market's downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?

Many of the millions suffering through these worrisome months didn't buy a house they could not afford, didn't speculate on their homes, didn't let greedy impulses lead them to the edge of foreclosure or bankruptcy.

Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.

For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it's their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.

The way the private, you're-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts.

Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners.

Most of them aren't much better at doing that than are their customers, but in a rising market, a chicken pecking at stock tables can pick winners. In boom times, it doesn't matter that the future retiree must choose among thousands of mutual funds, many of which carry ruinously high fees. The damage to people's savings goes unnoticed until the market begins to go down.

Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents.

As the retirement date comes near, they are advised to begin selling stocks and buying fixed-income securities -- as bonds are sometimes called -- because these pay the interest they earn on a fixed schedule, providing a regular income. For this to work, stock prices must be high when the holdings are sold and the bonds purchased must pay high rates of interest.

But what happens when the stock market is in a nosedive and interest rates are half of the inflation rate, as is the case right now? Panic and worry, no golden years of travel, no presents for the grandchildren. The energy that was to be expended on leisure activities is spent instead trying to figure out how to make ends meet.

The bright spot is Social Security. That check does come with the regularity of the calendar, whether the market is up or down, whether interest rates be high or low and if, as is the case now, the Greenspan-Bush inflation is destroying family budgets. Social Security adjusts for the rising prices.

But Social Security is too narrow a ledge to stand on through the years between retirement and death. It was designed as the base on which other retirement savings were to be built. Those savings -- the house and the tax-sheltered retirement accounts -- are shriveling up and blowing away.

The persons for whom Americans' savings have been a reliable source of income are the brokers, the lawyers, the account administrators, the whole tribe of Wall Street fee farmers. They get other people's retirement money regardless of the direction the market may be moving in.

You can't call it a broken system because it was a bad one from the start. It is failing, just as its critics said it would. And what lies ahead for those whose retirement savings are gone may be a very unpleasant old age.

The mainstream media blames "the housing slump" for government shortfalls. [But] the problem isn't a tax shortfall, it's a structural deficit between outlandishly generous pensions and healthcare benefits and what the economy can support.

I have often reprinted this little chart to graphically illustrate what bankruptcy looks like. We all read these mind-numbing numbers--unfunded Medicare obligations, $43 trillion, and so on--and then move on to sports or celebrity gossip or the latest bread-and-circus political "news."

That structural deficit can only be resolved by complete bankruptcy of government at all levels. You can't fund $60 trillion with tax increases, or hope that some Oil Exporting Nation's sovereign investment fund will loan us $60 trillion (the Medicare shortfall alone is $43 trillion, but let's not forget all those other promises to pay pensions and healthcare made by Federal, local and state governments).

As I have documented elsewhere, Medicare costs continue to climb at a rate far above the growth rate of the U.S. economy, and there is virtually no evidence to support the fantasy that adjusting a few parameters of payments or services will do anything to change that.

Medicare now costs over $500 billion a year, larger than any expense except Social Security (which is supposedly self-funding via the FICA payroll taxes) and the defense budget (fighting two wars, global war on terror, etc.). The trends are inescapable: Medicare will soon surpass defense spending, and then keep right on going.

There is no way to gracefully cut off entitlements, and politically it is impossible. That's why it's easy to predict bankruptcy is the only outcome: a point will have to be reached when the government simply can't tax or borrow enough money to meet its obligations.

At the Federal level, that will be reached when interest rates skyrocket and the interest on the Federal debt (National Debt) exceeds all expenses but Medicare.

The interest is already pushing $300 billion--yes, half as large as the entire Social Security budget--and it takes little imagination to see it doubling and then tripling as money becomes dear globally and our non-U.S. friends who have purchased all our debt finally tire of supporting our free-spending ways.

After all, every dollar they waste, oops, I mean invest, in U.S. bonds and mortgages (debt) is a dollar not invested in their own nations' well-being. Eventually their own people will demand that the surplus be invested in their own nation rather than propping up The Empire of Debt, a.k.a. the U.S.

At the local and state level, bankruptcy will become inevitable as soon as revenues are dwarfed by expenditures and pension/benefit promises.

The city of Vallejo has offered us the template which will be followed hundreds of times in the coming decade: recalcitrant public unions demand more taxes to cover the structural budget shortfalls and complain "the money's gotta be here somewhere," and after cutting services to the bone the city finally declares bankruptcy.

U.S. regulators took over two banks on Friday and sold them to Mutual of Omaha Bank, the sixth and seventh bank failures this year as financial institutions struggle with a housing bust and credit crunch.

Two weeks after the Federal Deposit Insurance Corp seized IndyMac Bancorp Inc, the Office of the Comptroller of the Currency said it closed First National Bank of Nevada and First Heritage Bank NA of California.

First National, characterized as undercapitalized, had total assets of $3.4 billion and $3 billion in deposits. First Heritage, described as critically undercapitalized, had assets of $254 million and $233 million in deposits, regulators said.

The FDIC said the cost of the transactions to its insurance fund is estimated to be $862 million, adding that the two failed banks represent just .03 percent of $13.4 trillion in total industry assets at about 8,500 FDIC-insured institutions.

The FDIC said the 28 offices of the two banks will reopen on Monday as Mutual of Omaha Bank. Over the weekend, customers can access their money by writing checks, using automatic teller machines or debit cards.

Mutual of Omaha Bank currently has more than $750 million in assets and operates 14 retail branches in Nebraska and Colorado with commercial lending offices in Dallas and Des Moines, Iowa, the FDIC said. It is a subsidiary of Mutual of Omaha, a 99-year-old insurance and financial services company with more than $19 billion in total assets.

Top banking regulators have warned of additional insolvencies this year and next, but for now do not expect failures the size of IndyMac, which had $32 billion in assets and $19 billion in total deposits at the end of March.

IndyMac, the third largest U.S. bank failure, was regulated by the Office of Thrift Supervision and is expected to deplete the FDIC's insurance fund by between $4 billion and $8 billion. IndyMac is being run by the FDIC while the agency looks to sell its assets.

The FDIC oversees an industry-funded reserve of about $53 billion used to insure up to $100,000 per deposit and $250,000 per individual retirement account at insured banks. The agency also has a running tally of problem banks that its examiners closely monitor. At the end of the first quarter, 90 institutions were on the list that is expected to be updated next month.

First Heritage of Newport Beach, California, had three branches with customers comprised mostly of corporations, while First National of Reno, Nevada, had 25 branches. Both were owned by First National Bank Holding Co of Scottsdale, Arizona.

In addition to assuming all the deposits, Mutual of Omaha Bank will purchase about $200 million of assets and pay the FDIC a 4.41 premium to assume the deposits.

Homeowners struggling to make their house payments could get government mortgage relief under a rescue plan that seeks to revive the chaotic housing market and help reverse the economic downturn.

The Senate is expected Saturday to clear the wide-ranging legislation — considered the most significant housing measure in decades — for President Bush's signature, and the White House says he'll sign it quickly. The bill gives the government power to throw troubled mortgage giants Fannie Mae and Freddie Mac a financial lifeline, in efforts to prevent the two pillars of the home loan market from going under and causing broader market turmoil.

It is designed to help an estimated 400,000 homeowners escape foreclosure by letting them refinance into more affordable loans backed by the Federal Housing Administration. The Senate on Friday cleared the last hurdle to its passage on a 80-13 test vote that showed broad support for the election-year package.

Bush, who initially called it a burdensome bailout for irresponsible borrowers and lenders, dropped a threat to veto it this week after his Treasury Secretary, Henry M. Paulson, argued the backstop for Fannie and Freddie was vital to calming markets in the U.S. and abroad.

That was despite his opposition to $3.9 billion the bill sends to neighborhoods devastated by the housing crisis to buy and fix up foreclosed properties. The administration argues that would hurt homeowners by giving lenders an incentive to foreclose rather than help people stay in their homes.

Supporters called the bill a crucial and long-overdue response to the mortgage meltdown that would be a key ingredient to boosting the sagging economy. "Unless we provide some type of footing for housing in the United States, I do not think that the economy will begin to recover. It is perhaps the most significant economic issue that we face," said Sen. Jack Reed, D-R.I.

"This legislation is going to be the linchpin that helps millions of families have decent, safe and affordable housing." Paulson's request for the emergency power to rescue Fannie and Freddie helped forge a bipartisan deal on the legislation, which also creates a new regulator with tighter controls on the government-sponsored mortgage firms — something Republicans have long sought.

Democrats also won key concessions as part of the compromise, including a permanent affordable housing program to be financed by Fannie and Freddie profits and the $3.9 billion in grants. Many conservative Republicans are vehemently opposed to the foreclosure rescue, which they call a bailout of reckless homeowners and unscrupulous lenders.

They are equally furious about the help for Fannie Mae and Freddie Mac, companies they say enjoy lavish profits in good times and wield their outsized political clout to resist regulation while depending on the government to bail them out should they falter.Sen. Jim DeMint, R-S.C., slowed the measure's final passage because Democrats refused to allow a vote on his proposal barring the two mortgage companies from lobbying and making political contributions.

Standard & Poor's may downgrade the subordinated bonds of Fannie Mae and Freddie Mac, surprising investors who had anticipated the securities would be supported by any Treasury rescue plan.

The potential cut would affect $19.2 billion of AA- rated subordinated debt at Fannie Mae and Freddie Mac, according to data compiled by Bloomberg. The cost to protect the bonds from default rose for the first time in three days. S&P said it may also downgrade $26 billion of preferred stock, pushing down the securities in New York trading.

The AAA ratings on the companies' senior debt were affirmed with a stable outlook. New legislation authorizing a backstop of the mortgage- finance companies leaves it up to the Treasury Secretary to decide whether to honor preferred dividend payments or to repay subordinated bondholders before the government, S&P analyst Victoria Wagner said in a telephone interview.

That "ambiguity" casts a cloud over the securities, she said. Once analysts have fully analyzed the final legislation, the ratings may be cut one or two levels, she said. "We had factored in some federal support for these securities, but now I think the financial risks are now outweighing support and have to be reflected in the rating," Wagner said.

The House of Representatives approved Treasury Secretary Henry Paulson's request for the authority to extend credit and buy unlimited equity stakes in Fannie Mae and Freddie Mac if needed. The Senate plans to vote as early as tomorrow.

Paulson moved to shore up the companies as concern grew that they may not have enough capital to weather the worst housing slump since the Great Depression. Fannie Mae and Freddie Mac shares are down more than 70 percent this year.

The plunge in the stocks is "adding to the already-stressed business cycle" and may make it difficult for the companies to raise capital, Wagner said. "We feel that given the changing market dynamics and the changing legislation landscape, that that heightened risk should be more of a factor in our current," Wagner said.

Investors had anticipated any government rescue would come in the form of equity, which would rank behind subordinated debt for repayment, said Jamie Jackson, a portfolio manager at Minneapolis-based RiverSource Investments, which manages $93 billion of fixed-income assets. The potential downgrade of the preferred stock isn't as surprising, Jackson said.

"The fact that they lumped the sub debt in there seems questionable," Jackson said. "If we are talking about equity capital being contributed by the government, by any measure that we can come up with, that should protect the subordinated debt."

Zimbabwe, wracked by hyperinflation, introduced a 100-billion Zimbabwean dollar bank note a week ago. As one of the most worthless bits of paper on the planet, the bill can't buy much - just one or two loaves of bread.

But there's always a chance, if you stacked a few of them together, that you could pay for a grungy bungalow in Stockton, Calif., where one in every 25 households got a foreclosure notice between April and June, or in Flint, Mich., where homes once worth six figures receive no bids at all.

As with currency in Zimbabwe, everything about the U.S. housing crisis is marked by large numbers. That's especially true when the topic is Fannie Mae and Freddie Mac, those monuments to American capitalism, or is it socialism? Hard to tell these days.

The twins of U.S. home finance own or guarantee $5.2-trillion (U.S.) in mortgages, slightly less than the gross domestic product of China, India and Russia combined. There's about $1.5-trillion of outstanding debt on the balance sheets of the two companies, as of the end of March, which is a bit more than the economic output of Canada, Spain or Brazil.

The notional value of the derivative contracts they've got is about $2.5-trillion - France's GDP - according to Montreal's BCA Research. Too big to fail? Definitely. As for how much dough they might need to survive as private enterprises - and I use that phrase loosely - that, too, is enormous.

Citigroup, UBS and other big banks have been raising money in $5-billion and $10-billion chunks. But in the most pessimistic scenarios, where the housing virus lingers into 2010, Fannie and Freddie could be forced to find $52-billion in new capital by the end of next year, BCA says. They probably couldn't do it. Nationalization would be inevitable.

Numbers, numbers everywhere, but how did it come to this? Maybe the best way to explain it is to begin with another number: $115-million. That's the amount in bonuses that U.S. regulators once tried to retrieve from three former senior Fannie executives, including former CEO Franklin Raines.

Oh, how the Fannie Mae folks had gorged themselves during the glory days. In 2003, Mr. Raines, in addition to his $5.2-million in salary and bonus, got the company to foot the bill for $200,000 in personal travel, $37,000 for personal tax and financial advice, $11.6-million in "incentive plan" payouts, life insurance, pension, stock options - you could run out of breath listing it all.

Daniel Mudd, his chief operating officer, got a slightly less lucrative package, still totalling some $7-million, including $80,000 to buy him club memberships. But hey, weren't these guys worth it? Hadn't they engineered a remarkable growth story? No longer just guaranteeing or packaging mortgages - how boring - Messrs.

Raines and Mudd had plunged headlong into investing in them, and without the capital constraints of a normal commercial bank, Fannie nearly doubled its profits between 2000 and 2003.

That turned out to be a sham, and by the end of 2004, Mr. Raines was forced into early retirement in a $10-billion accounting scandal. An investigation was hatched and a U.S. government agency found that Mr. Raines had earned more than $90-million in total compensation from '98 through 2003, and the majority of it, $52-million, was paid for achieving profit targets - with phony profits.

But here's the punchline: When regulators tried to recover the money, Mr. Raines dug in. He and the two other former executives settled the case a few months ago, paying $3-million in fines (which was covered by a company insurance policy).

Mr. Raines also donated $1.8-million from the sale of Fannie stock to programs aimed at boosting home ownership and averting foreclosures, and forfeited some stock options that were far out-of-the-money anyway. And Daniel Mudd? He's now Fannie Mae's CEO.

The message to senior bankers could hardly be clearer. Their's is a sweet one-way deal. When aggressive lending and preposterous accounting bring terrific profits, they can earn enough to live like kings. And when those same lending and accounting practices blow up, others will take the hit and the execs can still live like kings. Hell, they might even get promoted.

If you fix this moral hazard, you can start to fix the U.S. financial system. But even then, it should never again be allowed to spawn two companies like Fannie and Freddie. They grew powerful by wrapping themselves in the flag. Their mission was to promote the American dream of home ownership. And will you look at what a success that was?

At the start of 2001, when the U.S. Federal Reserve began a cheap-money policy that sowed the seeds of the housing bubble, the home ownership rate was 67.5 per cent. Today, it's 67.8 per cent and falling as foreclosures grip the country. Meanwhile, U.S. taxpayers and investors suck up billions in losses. What a waste.

Shares of Fannie Mae and Freddie Mac ended in the red Friday, unable to shake off their malaise as the specter of a ratings cut on the two mortgage giants also dampened enthusiasm in the broader financial sector.

"S&P downgrading Fannie and Freddie is seeping in, and the financial system is going under the waves. People might have looked up at the calendar and saw it was Friday, too," said Art Hogan, chief market strategist at Jefferies & Co.

The ratings agency said it may downgrade the subordinated debt and preferred stock of the two government-sponsored mortgage buyers, noting any government bailout of Fannie and Freddie could place these securities lower in the capital structures of the companies. The Senate is expected to pass the bill for a government prop-up of the two firms on Saturday.

Fannie and Freddie clawed back some gains from larger losses earlier in the day. Fannie ended 3.9% lower to $11.55 after hitting an intra-day low of $10.17, and Freddie ended 6.1% down to $8.27 after hitting an intra-day of $7.50. Meanwhile, investors were also spooked by rising foreclosure data released early Friday.

U.S. foreclosures in the second quarter more than doubled from the year-earlier quarter and rose nearly 14% from the previous quarter, RealtyTrac said Friday. "Although much of the fallout from foreclosures is being driven by rampant activity in a few states, such as Nevada, California, Florida, Ohio, Arizona and Michigan, most areas of the country are seeing at least some increase in foreclosure activity," said James J. Saccacio, chief executive officer of RealtyTrac.

Washington Mutual shares ended 4.7% lower Friday at $3.84 as turbulence continued to slam its stock. WaMu shares have dropped 35% this week. The nation's largest thrift came out to say Friday that it has boosted liquidity to more than $50 billion this month, after it was hit by concerns that it is losing access to some sources of funding. Protection against a default by the company got more expensive.

Shares of Wachovia also fell further, closing 7.6% lower after the company said late Thursday that Chief Financial Officer Thomas Wurtz will leave the company. Morgan Keegan & Co. downgraded Wachovia to underperform, as the research firm said Friday it favors First Horizon and SunTrust. But shares of both First Horizon and SunTrust also fell, dropping 2.8% and 2.4% respectively.

The positive big-ticket-goods data and better consumer sentiment study which came out early Friday, failed to stoke investors' excitement through to the end.

They used be paranoid preparation nuts who built bomb shelters for a place to duck and cover during nuclear dustups with communist heathens, but their tangled roots go back to the Great Depression for a reason.

If you want to get sociological about it, survivalism started out as a response to economic catastrophe. And now, with a cratering stock market, a housing meltdown that has devalued everything in sight, and skyrocketing prices for food, gas and pretty much everything else, survivalists are preparing for -- and are prepared for -- the rerun.

In fact, they may be the only people in America feeling good about the prospects of a major crash. And the interesting thing about the once-fringe movement at this moment in history is that survivalism has now gone green -- at least in theory.

From peak oil and food crises all the way to catastrophic payback from that bitch Mother Earth, there are more reasons to hide than ever. Conventional society as we know it is already undergoing some disastrous transformations.

Ask anyone ducking fires in California, floods in the Midwest or bullets in Baghdad. Maybe it didn't make sense to run for the hills, stockpile water and food, grow your own vegetables and drugs, or unplug from consumerism back when America's budget surplus still existed, its armies weren't burning up all the nation's revenue and its infrastructure wasn't being outsourced to a globalized work force.

But those days are gone, daddy, gone.

What's coming up is weirder. Author, social critic and overall hilarious dude James Kunstler tackled that weirdness, otherwise known as an incoming post-oil dystopia, in his recent novel, World Made by Hand, which has since become one of a handful of survivalist classics. And as Kunstler sees it, whether you are talking about gun nuts or green pioneers, at least you are talking.

"At least they're aware that we've entered the early innings of what could easily become a very disruptive period of our history," the Clusterfuck Nation columnist explains. "Most of them are responding constructively rather than just defensively. They're much more interested in gardening and animal husbandry than firearms."

Not that the gun nuts have gone away. Their ranks have just diversified. "The gun nuts have been on the scene longer than the peak oil argument has been in play," he adds. "They were initially preoccupied with Big Government and its accompanying narrative fantasy of fascist oppression, which is why they adopted a fascist tone themselves.

But peak-oil survivalists are different from the Ruby Ridge generation. They don't think that a bolt-hole in the woods is a very promising strategy. We have no idea at this point what the level of social cohesion or disorder may be, but if the rural areas, especially the agricultural centers, become too lawless for farming, then we'll be in pretty severe trouble because there will be nothing for us to eat."

That's not on the to-do list of author and SurvivalBlog owner James Rawles, who has been getting asked more and more questions by a mainstream press finally waking to the consequences of disaster capitalism, climate crisis and the hyperreal dream of bottomless consumption.

He has fielded questions from the New York Times, and he has taken an online beating from conscientious pubs like Grist, but he hasn't gone Hollywood. The times, which are a-changin', have caught up to him.

"There is greater interest in preparedness these days because the fragility of our economy, lengthening chains of supply and the complexity of the technological infrastructure have become apparent to a broader cross section of the populace," Rawles wrote to me via e-mail (but only after asking how many unique monthly visitors AlterNet commanded).

"All parties concerned may not realize it, but the left-of-center greens calling for local economies and encouraging farmers markets have a tremendous amount in common with John Birchers decrying globalist bankers and gun owners complaining about their constitutional rights.

At the core, for all of them, is the recognition that big, entrenched, centralized power structures are not the answer. They are, in fact, the problem." Fair enough. But that broad brush fails to recognize the complexities of the very community it is purporting to try to establish.

Indeed, difference is what survivalists seem to be running from, whether it is historically the difference between blacks and whites, secularists and true believers, or simply the haves and have-nots. It is that latter crowd that the survivalists seem most worried about. Their separation from society at large is arguably a retreat from community rather than a striving toward it.

"I'd say that survivalism is indeed a celebration of community," Rawles asserts. "It is the embodiment of America's traditional can-do spirit of self-reliance that settled the frontier."

But that's also a generalization, especially when one considers that the word "settled" is a coded reduction for a "near-genocidal wipeout of the frontier's native populations," most if not all of whom were perfecting a survivalist ethic by maximizing their skill sets and living in symbiosis with the land that provided them what they needed in food, tools and medicine.

In fact, those settlements would have been hard-pressed to exist without what Rawles earlier described as a "centralized power structure," known as the expansionist United States government and its military, paving the road forward. Each self-reliant mythology carries within it grains of complicity in the community at large, which is a fancy way of saying there's nowhere to run, baby, nowhere to hide.

This is especially true today in our hyperreal, hyperconsuming 21st century, where survivalism has become more of a gadget fantasy than an earnest grasp for community. "It seems a natural human impulse that we are hard-wired to follow as circumstances require," Kunstler says, "although it is constrained by social and cultural conditioning.

To some degree, in our consumer culture, survivalism is related to the gear fetishism you see in popular magazines that purport to be about sporting adventures, but are really about acquiring snazzy equipment. America in 2008 has become a cartoon culture of Hollywood violence that promotes grandiose power fantasies of hyper-individualism and vigilante justice.

Add guns and economic hardship, and spice it up with ethnic grievances, and the recipe is not very appetizing."

Turbulent financial markets and layoffs on Wall Street are beginning to take a heavy toll on the economy of New York City. The growth of city's economy slowed to a crawl at the start of this year, falling below the U.S. economic growth rate after exceeding it for most of the last two years.

The city's total output, known as the gross city product, increased by 0.8 percent in the first quarter of 2008, slower than the 1 percent growth in the gross domestic product, according to a report released Thursday by the city comptroller. Those figures marked a turnaround from the last quarter of 2007, when the city's output rose by 1.4 percent while the national economy increased just 0.6 percent.

"We were outpacing the national economy for a while there, certainly," said Frank Braconi, chief economist in the comptroller's office. "We've kind of come back to earth in terms of converging with the national economy. The fact is that we have converged to a slowing national economy."

The city's economy had shown few symptoms of the national slowdown through the start of this year. Employment was still on the rise, tourism was booming and taxes collected on sales and income were continuing to grow. But as the turmoil in the financial markets that started last summer has persisted and spread, its effects have begun to show.

Layoffs on Wall Street have mounted in the last few months. In June, the city's unemployment rate, which had been lower than the national rate, rose to 5.4 percent, about equal with the national rate of 5.5 percent. The city's economic growth rate in the first three months of the year was its lowest since the fall of 2003, when the local economy finally pulled out of a recession that started in 2001 and was aggravated by the terrorist attacks of Sept. 11, 2001.

Since then, the gross city product had grown by at least 2.8 percent every quarter through last fall, the comptroller's data showed. Already, city and state officials are wondering about the potential effect on the city's tax revenue and budget.

"The greatest risk to the city's budget is the extent and the depth of the slowdown, particularly as it affects Wall Street," said Kenneth Bleiwas, the deputy state comptroller for New York City. "Nobody knows how long it will take to get through this mess."

Economists were divided over whether the United States was in the throes of a recession, but until now, there had been general agreement that the New York City economy, while slowing, was not in recession.

However, the comptroller's report, along with other indicators, suggests that if there is a full-blown U.S. recession, the city's economy is likely to fall into one as well. Some said that with the fallout from the troubles on Wall Street so concentrated in the metropolitan New York area, the local economy could wind up in a recession even if the national economy rebounded.

Strains are growing again in the US car finance market as a dramatic slide in used vehicle values and tightening credit conditions squeeze participants ranging from investors in auto loan-backed securities to finance companies and car buyers.

The pressures were evident earlier this week when Ford Credit, Ford Motor's financing arm, reported a $294m second quarter loss, compared with a $112m profit a year earlier. Ford Credit wrote down its lease portfolio by $2.1bn and stepped up its loan-loss provisions.

Based on Ford's results, Himanshu Patel, analyst at JPMorgan, estimates that General Motors' second quarter earnings could take a $2.2bn hit, before tax, from impaired lease residual values at GMAC, the financial services group 49 per cent owned by the carmaker. Cerberus Capital Management owns the remaining 51 per cent of GMAC, plus an 80 per cent stake in Chrysler, which also has a captive vehicle financing arm.

The slump in pick-up and sport-utility vehicle sales has forced financing companies to sell off-lease vehicles at prices below contracted residual values. Wholesale used vehicle prices dropped by 7.4 per cent in the year to June, including a 3.3 per cent tumble in the past month alone, according to Adesa, a vehicle auction group. Prices for full-sized pick-ups and SUVs have slumped by a quarter over the past year. Other luxury vehicles also saw sizeable declines.

Delinquency rates have also risen. "Conditions in the auto-finance market are not too good," said Scott Carstens, head of quality control and lending at Crescent Bank and Trust of New Orleans, a subprime lender. Mr Carstens said that many traditional banks and finance companies had tightened their credit criteria, giving an opening to specialised subprime lenders that take more time to scrutinise individual applications.

Chris Flanagan, head of ABS research at JPMorgan, said that concerns centred on the Detroit carmakers. "Other issuers have had pretty good success in the market," he said. According to Mr Flanagan, auto loan related securitisations totalled $62bn for the full-year 2007 and issuance is running at $32bn so far this year. Recent issuers include Honda, Carmax and USAA, a financial services company that specialises in military personnel.

Risk premiums, or spreads, in the ABS market have widened in the past month or so, but are well short of levels reached in March. Rates on Ford Credit, GMAC and Chrysler ABS are 30-40 basis points higher than the overall market. Fitch Ratings said in a report earlier this month that lower recovery values on SUVs and pick-ups have led to greater losses on defaulted loans in many securities backed by auto loans.

These losses "will place negative pressure on the subordinate bonds of certain auto asset-backed securities transactions", Fitch said. However, John Bella, a Fitch analyst, said that recent ratings of auto-backed paper had taken account of more stressful market conditions, with the result that ratings had remained stable and, in some cases, even been upgraded.

Ford Credit said that it was dealing with more hostile business conditions by maintaining substantial cash balances, diversifying sources of funding and exploring new business arrangements.

Joel and Jackie Brende differ on many things. He’s a Republican, and thrilled to have just shaken John McCain’s hand at a town-hall meeting in Kansas City, Missouri. She’s a Democrat, who supports Barack Obama because she thinks it is “time for a change”. But both of them agree that America’s star is fading.

“We were always optimistic when we were young. We thought that every year, things would get better,” says Mrs Brende. But now: “The bubble has burst. I think my generation [will be] the last to see a great America.” Her husband agrees. Standards are falling in schools, he frets.

Young people are finding it harder to get ahead. “We’ve all been so greedy for so long and it has caught up with us,” says Mrs Brende. She hopes that Mr Obama may be able to do something about the national malaise, but fears that “It’s too late. The slide is on.”

Asked about their own lives, however, the Brendes are rather more cheerful. “We’re OK, financially,” says Mrs Brende. She is a travel writer; her husband is a doctor. They live half the year in Missouri and half in Mexico. They have 24 grandchildren and another on the way. Life could be a lot worse.

Regardless of their political beliefs, American voters are in a horrible mood this year. Democrats are sick of George Bush. Republicans are sick of the Democrats running Congress. Everyone worries about Iraq, either because they think the war should never have been fought, or because of the long, costly and thankless slog it has turned into.

The latest violence in Afghanistan is depressing. The culture war grinds on: America is slouching towards Gomorrah or theocracy, depending on your viewpoint. The earth is either cooking or being overrun by eco-fanatics. And the American economy is tottering.

The polls tell a dismal tale. Only 29% of Americans approve of the president. Only 14% approve of Congress. And just 6% view the economy positively. Yet many Americans combine despondency about the big picture with personal contentment. More than 80% say they are satisfied with their own circumstances. Even more are satisfied with their jobs.

And although nearly everyone despises Congress, most Americans like their own representatives. How to reconcile these stark apparent contradictions? Some blame the media for overhyping gloomy news. Phil Gramm, a former senator from Texas and adviser to Mr McCain’s campaign, told the Washington Times that:

“We have…become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline…Thank God the economy is not as bad as you read in the newspaper every day.”

He had a point. American headlines are crammed with words like “failure”, “hurting” and “Fannie Mae”. Foreign pundits sound even more bearish, and one sometimes detects a hint of gloating at the hyperpower’s distress. “The Great Depression,” thundered the front page of the Independent, a British newspaper, in April. The story underneath was about an increase in the demand for food stamps, after an effort to publicise their availability.

Amity Shlaes, the author of a history of the Great Depression, thinks the comparison absurd. During the 1930s, she notes, “people lost their homes even though they had borrowed only 10% of the purchase price.” People losing their homes today often borrowed more than 90%. And today’s unemployment rate, though rising, is 5.5%. In the Great Depression, it peaked at 25%.

Most Americans think their country is in a recession. But, buoyed by exports, output has yet to shrink for a single quarter. Mr Gramm suggested that his compatriots are suffering a “mental recession” rather than a real one. The McCain campaign tossed him under the Straight Talk Express, which was harsh but politically wise.

For the figures miss an important point: consumers are facing a nasty squeeze, hit simultaneously by soaring costs for petrol, food and health care, tumbling house and share prices, tighter credit and flagging wages. Both candidates hear voters complaining about these things all the time. And since neither of them is a fool, both crack their cheeks trying to sound sympathetic.

Petrol prices, despite their recent retreat, hurt nearly everyone. Adam Julch, an enormous former college football star who is now a manager at a trucking firm in Omaha, Nebraska, complains that he had to trade in his pickup truck for a little Honda Civic. “I’m 350 pounds,” he says, “I feel like I’m in a clown car.”

Soaring energy costs have sent the overall inflation rate to 5%—higher than it was in 1992, when angry voters threw out George Bush senior. Average hourly pay is falling in real terms. Meanwhile houses, most Americans’ biggest asset by far, are tumbling in value at a pace that exceeds that seen in, yes, the Great Depression.

The S&P/Case-Shiller index of national house prices is down 16% from its peak, and judging by the overhang of unsold homes, has a lot further to fall. Asset deflation coupled with consumer-price inflation is a powerful recipe for political discontent. In Prince William County, Virginia, for example, house prices fell by 31% in the year to May and one home in 111 is in foreclosure.

During the boom years, lenders offered mortgages to people with no cash for a deposit and no documents to prove a steady income, sighs a local real-estate agent. When these borrowers lost their jobs—and some were in the construction business, which has nosedived—many simply walked away from their homes.

In the worst-hit neighbourhoods, such as Dale City, the foreclosure signs are everywhere. “People don’t want to buy round here because they see all these empty houses and wonder what’s wrong with the area,” says Ed Moore, an air force veteran who supports Mr McCain. “Things are going badly,” says John, who owns a struggling local construction business and supports Mr Obama but prefers not to advertise the fact to his clients.

Both men are grumpy, but both reckon they will cope. Mr Moore’s home has lost much of its value, but since he plans to stay in it “till they put me six feet under”, he is not unduly bothered. John plans to quit construction, move to Texas and get into publishing. He is a college dropout, but reckons that “if you do some research, you can make a lot out of nothing” in America.

Meanwhile, others see an opportunity in Dale City’s collapse. Jessica Lofiego, a mother of two, is scouring the neighbourhood for a bargain. At the height of the boom, she says, normal families couldn’t afford a nice place this close to Washington, DC. Now, she’s looking at a spacious 3-bedroom house that someone is trying to unload for $149,000.

History suggests the housing slump will last for a while. A study of post-war housing busts by the IMF found that they typically last four years and involve a loss totalling 8% of a year’s output. Inflation, meanwhile, could slow if commodity prices stabilise.

But given rapid, commodity-intensive growth in emerging economies, the underlying price shift—where American consumers spend relatively more of their income on food and fuel—is here to stay. Small wonder they are sour.

The malaise stems in considerable part from a feeling that individuals have become more vulnerable to forces beyond their control. The American can-do spirit is not dead, of course. Laid-off workers are finding new jobs, motorists are driving less and cooks are trawling the internet for recipes to jazz up the leftovers in the fridge.

But some shocks are hard to adjust to. The American suburban idyll of big homes and big gardens relied on cheap petrol. With gas prices high, many suburbanites yearn for a shorter commute. But they cannot quickly or easily sell their homes and start living in denser clusters with better public transport. Nor is it clear that they want to.

So they suffer, and pray for petrol prices to fall. Sometimes literally: Rocky Twyman, a community organiser from Maryland, leads group prayers at petrol stations to beg for divine intervention. America’s costly but leaky health-care system aggravates several other problems. Soaring health-insurance premiums depress wages and prompt cash-strapped firms to stop covering their staff.

The proportion of workers whose employers cover them fell from 65% in 2001 to 59% in 2007. And the fact that most Americans still get their health insurance through their job makes them much more worried about losing it. Unemployment may be low, but if it means your children lose their health cover, losing a job is scary.

Opinion polls show unprecedented concerns about income distribution and economic mobility. Gallup finds that nearly seven out of ten Americans think wealth should be more evenly distributed, the highest fraction since the question was first asked in 1984.

People are worried about inequality for good reason: real median household income has fallen since 1999, while labour’s share of the national pie has shrunk. The squeeze on labour could be cyclical: between 1997 and 2001, workers’ share of national income rose; now it is back where it was in 1997.

But the earnings gap between the most-skilled workers and everyone else has been widening since the early 1980s. And in recent years the gains to the top have taken off while most people have stood still, or even fallen back, though the squeeze was partly mitigated by differing spending patterns.

Figures collated by Emmanuel Saez, an economist at Berkeley, make the point starkly. In the 1990s, the incomes of the richest 1% of taxpayers went up 10% a year in real terms (see chart), while those of the other 99% grew at an average annual rate of 2.4%. Between 2002 and 2006 the richest 1% saw 11% annual real income growth: everyone else got less than 1%.

Three-quarters of the gains from the Bush expansion went to 1% of taxpayers, who now receive a larger share of overall income than at any time since the 1920s.

American companies are on sale. Foreign buyers are circling, taking advantage of a weak U.S. dollar and a depressed stock market to snap up U.S. companies at discounted prices.

Recent big deals include the July 13 acquisition of Anheuser-Busch, the owner of Budweiser and other iconic American beer brands, by Belgian brewer InBev for $52 billion. On July 21, Swiss biotech company Roche Holdings said it will swallow the rest of San Francisco-based Genentech that it doesn't already own for $43.7 billion. And on July 23, Japanese insurer Tokio Marine Holdings announced plans to buy U.S. insurance company Philadelphia Consolidated Holding for $4.39 billion.

The headlines are enough to give some Americans the queasy feeling their country is being sold out from under them. "It's the End of an Empire Sale and everything must go!" comedian Lewis Black said on Comedy Central's The Daily Show. "We're so hard up for cash we're dismantling America and selling it for scrap." He cited the Anheuser sale as well as this month's $800 million purchase by the Abu Dhabi Investment Council of a 90% stake in New York's Chrysler Building.

In the past five years, 2,331 U.S. firms with a total value of $772.3 billion were purchased by foreign buyers, according to data provider Capital IQ. In 2007, 614 U.S. firms, valued at $294.4 billion, were acquired by foreign entities, up from 226 firms valued at $49.6 billion in 2003.

Foreign buying in 2008 has slowed slightly, reflecting the global slowdown in merger-and-acquisition activity in recent months. However, foreign dealmaking could still match 2006's healthy pace: At mid-July, 266 deals valued at $121 billion had been announced, compared to 541 deals, totaling $155.1 billion, in all of 2006.

Bankers and M&A specialists interviewed by BusinessWeek said there were several reasons foreign buying of U.S. firms can be expected to continue and even accelerate. One factor is the weak U.S. dollar. The euro is near record highs against the dollar, up 13.6% in the past year. The dollar index, measuring the U.S. dollar against a basket of foreign currencies, is down 9% from a year ago.

There's disagreement about how much a weak dollar actually entices buyers. A foreign company might pay less in its native currency, but it's also getting less, because a U.S. firm's cash flow and profits are also denominated in American currency, says H. Hiter Harris III, co-founder of boutique investment banking firm Harris Williams.

However, that logic doesn't apply if you're buying a hard asset, Harris says. Just as foreign tourists take advantage of the weak dollar to buy clothes, jewelry, and other items at steep discounts, foreign firms can buy assets such as land, buildings, and especially brands—like Budweiser, for example.

While the weak dollar may not be a decisive factor, it can speed up deals. Buyers are thinking, "if we were going to make a move in the next 10 years, this would be as good a time as any," says Herald Ritch, president and co-CEO of investment bank Sagent Advisors.

Another factor may be the availability of credit. While the financial crisis is a global phenomenon, foreign buyers "seem to have a little better access to financing than we do in the U.S.," says John LaRocca, a partner at Dechert who specializes in M&A.

However, even if the price is right and credit is available to buyers, bankers say a potential acquisition must make strategic sense. For example, by combining with U.S. companies, foreign consumer companies often are seeking to make global distribution systems more efficient. "You can get more products through the same distribution channels," says Paul Smith of FTI Consulting.

"The U.S. is still the biggest and richest market in the world," says Ritch. "If you have global aspirations, you need to be in the U.S." Where are the all the buyers coming from? Companies in Canada and Europe's developed countries have consistently been the most aggressive buyers of U.S. companies and initiated 69% of deals last year, according to Capital IQ.

Asian companies have stepped up their buying, particularly those from emerging economies such as India and China. Emerging Asian companies launched 23 buyouts so far in 2008 and 62 in 2007, nearly double 2006's total and more than four times 2005's. But emerging Asian companies, which tend to focus more on growing within their own borders, make up a small portion of the buyers.

Foreign buying of U.S. firms could accelerate if worries ease about the U.S.'s credit troubles and weak economy. "They want to look before they leap," Ritch says. U.S. financial companies, which have had their market values slashed in the last year, are among the industries that could eventually attract interest from abroad, bankers say. But buyers don't want to own these kind of distressed businesses just yet, Harris says, because they aren't sure when those industries will hit bottom.

Prospective buyers are sticking to safer, more secure parts of the U.S. economy. "We see a lot of action [in] high-quality growth companies," Harris says, who notes that energy businesses are favorite buyout targets now.

After the subprime crisis, a superprime one? That depressing scenario looks plausible given the unexpectedly weak second-quarter profits from American Express, America’s fourth-largest card issuer and the one most geared towards well-heeled consumers.

June was particularly ugly: “roll rates”—the number of customers falling from current to 30 days delinquent, or from 30 to 60 days—jumped sharply. Amex’s charge-offs of debt deemed unrecoverable have climbed in a few months from unusually low levels to well above the historic average of 4.8% of balances outstanding. It has scrapped its earnings forecast.

Amex’s problems stem in part from a familiar source: an aggressive move out of its traditional business of charge cards, which must be paid off each month, into riskier credit cards that allow customers to carry a balance.

As the credit boom reached its peak, the firm’s credit-card business was growing by a dizzying 20% or more a year, with younger consumers with scant track records among the targets. “Outsized growth came at a price in terms of credit quality,” says Richard Hofmann of CreditSights, a research firm.

But broader forces are at work. With property prices tumbling, unemployment rising and consumer confidence at a 16-year low, even “longer term, superprime card members” are feeling the pinch, Kenneth Chenault, Amex’s boss, told analysts this week. They are spending less on discretionary items, and many are struggling to keep their balances down—even, ominously, if they have gleaming credit scores.

If this trend worsens, losses could mount at an accelerating rate. That is because customers with better credit scores get disproportionately larger credit limits, points out David Robertson of the Nilson Report, which tracks the industry. A risky customer might be given $2,000, a slightly sounder one ten times that.

Big losses would be particularly painful for big banks, which have come to rely heavily on card revenue to offset capital-markets losses. Some 79% of Citigroup’s profit last year came from cards.

Issuers are reacting by slowing acquisition of new customers and tightening credit lines to many existing ones. Mr Chenault has promised to be “very, very surgical” in dealing with cardholders Amex deems risky. But the only card firms that look safe are the pure payment processors, who do not have to worry about mounting bad debts. MasterCard’s share price has risen by 62% in the past year. Amex’s is down by 39%.

The Bank Implode-O-Meter reports news chronologically. I started at the top of the list and went down until I hit the names of the two cited as most likely to fail – Wachovia and Bank of America. Washington Mutual should be on the list, too, but they used to be a credit union before they became publicly traded, I’m not sure where to track down their deposit numbers, and even if I did credit union insurance is different than bank insurance.

Please understand this - there isn't a linear relationship between the deposits insured and those writedowns. If a bank is up on that list with a writedown in billions that is only what they've admitted. Qualifying for a slot on the Bank Implode-O-Meter is almost the human equivalent of a diagnosis of pancreatic cancer; the one year survivorship numbers are not comforting.

So ... the last two have just shy of a trillion dollars in deposits, the vast majority of those will be under the $100,000 FDIC limit, and FDIC has a piddling $51 billion to cover failures. And these are just two of the estimated 2,200 banking failures coming. I can practically write myself Henry Paulson’s sober sounding statement as to why the FDIC will have direct access to the treasury in order to stem the panic ...

This "bailout" will be pitched as a way to stabilize the market, as a benefit for you and me, and as responsible operation ensuring the dollar remains a reserve currency. The people who have contributed the most to this mess will be sure to get their paychecks, their bonuses, and their golden parachutes. You and I, and our children and grandchildren, will be made to tote the note and the whole thing will hatch out either right at the end of Bush’s administration, or if they play it just right, it will come as Obama arrives in office, and they'll be hoping they can lay the blame for the mess on him.

This is worse than what we faced in 1929 due to our being wrapped up in Iraq and Afghanistan and facing oil production declining globally rather than the rise of the 1930s that helped pull us out of the Great Depression. 2008 in the United States seems rather like 1990 in the Soviet Union, right before their empire collapsed.

The economy is not officially in recession - at least not yet. However, the growth figures published by the Office for National Statistics underline the fact that UK Plc is heading slowly but surely towards negative territory.

The economy's 0.2pc expansion in the second quarter means the annual rate of growth has now dropped to just 1.6pc - equalling a 15-year low and coming in comfortably below Alistair Darling's forecast for economic growth this year.

The figures show that after a relatively robust first quarter, a number of important sectors slowed markedly in the three months to June. In the latest evidence that the housing market slump is weighing on the economy, the construction sector's output fell by 0.7pc on the previous quarter - the largest fall for almost three years.

Meanwhile, growth in consumer spending, which has been the engine for UK growth for most of the past decade, slowed appreciably - though the precise data on this will not be available until next month.

However, the fact is that the real economic trauma in the economy - the record drop in house prices, the sudden plunge in retail sales; the dive in services and manufacturing sector activity - only occured at the very end of the second quarter, so would not have tainted these figures too much anyway.

However, this implies that there is a significant chance that growth drops into negative territory in the third quarter. The economic textbooks say that a recession is technically defined as two successive quarters of contraction, so, this would leave the UK one step away from its first technical recession since the early 1990s.

Such a suspicion is confirmed by the ONS numbers, although there were a few surprises. Most notably, the services sector, which accounts for around three quarters of UK economic growth, expanded slightly faster than in the first quarter.

However, a closer look shows that this was largely thanks to a surge in transport and communication - perhaps in part due to higher petrol prices boosting profits. The National Institute for Economic and Social Research said in its latest quarterly report that Britain faces three years of anaemic economic growth, though it will avoid a recession.

I happen to believe that it is too optimistic. With UK consumers and companies more indebted than any of their counterparts overseas the scale of the economic slowdown facing us will be significant. Don't forget that only a few months ago a variety of economists (and the Council of Mortgage Lenders comes to mind here) were confidently predicting that house prices would not fall this year.

They could not have been more completely, utterly wrong. Economists find it hard to forecast recessions.That doesn't change the fact that the r-word is now the most likely outcome for the UK economy

Britain's economy shrank in May and June as the worst housing market slump in decades took its toll on the UK, it has emerged.

It is the most conclusive sign yet that the longest run of sustained economic growth since the early days of the Industrial Revolution over three centuries ago is over. The Office for National Statistics reported that Britain's gross domestic product grew by only 0.2pc in the second quarter - the slowest quarterly growth for three years.

With the annual GDP growth rate now down from 2.3pc in the first quarter to just 1.6pc in the second, the Chancellor's optimistic 1.75-2.25pc forecast for growth this year looks effectively unattainable, economists said.

They also warned that the figures showed that although strong growth in April helped keep the overall quarterly growth rate in positive territory, GDP actually shrank in May and June, by 0.2pc and 0.3pc respectively. This underlines the likelihood that Britain is now skating close to a period of contraction, according to Geoff Dicks of Royal Bank of Scotland.

"On our estimates a rise of fractionally more than 0.1pc a month between July and September would be enough to avoid a quarter of negative growth though, on the trend of the last two months, you would not bet on it. After an unbroken run of 64 quarters, the first negative quarter since 1992 appears to be under way."

A number of economists changed their forecasts following today's statistics to reflect the likelihood that Britain suffers a technical recession - where GDP shrinks in two successive quarters. Paul Dales of Capital Economics, said: "An outright recession is now our central scenario. With industrial production having fallen in both the first and second quarters, industry is already in recession.

"Looking ahead, the more up-to-date surveys suggest that in Q3 so far, overall economic growth has ground to a complete halt."

Interest rates will eventually need to fall, he added. "The recent drop in the oil price and the price wars on the petrol forecourts support our view that the next rate cut could come late this year, but this will be too late to prevent a recession," he said.

The ONS figures show that a sudden dive in construction output during the quarter, fuelled by the difficulties in the commercial and residential property markets, pulled down the overall growth rate. But although the annual growth rate of the services sector, which accounts for around three-quarters of UK economic output, hit the lowest level since 1992, it actually picked up slightly compared with the previous quarter.

With figures earlier this week suggesting that a number of eurozone countries are now skirting close to a recession, the UK data will confirm suspicions that Europe may suffer as serious a blow, if not more severe, from the credit crunch than the United States.

The National Institute for Economic and Social Research warned yesterday that Britain faces three years of "anemic" growth, though it ruled out the likelihood of a recession. The weak growth figures may raise the chances that the Bank of England cuts interest rates in the coming months, though a reduction is unlikely before the winter, economists said.

Markets were shaken earlier in the week by the news that Monetary Policy Committee member Tim Besley voted for a rate increase to 5.25pc at the Bank's meeting at the start of the month. The Bank is expected to give a clearer indication of its future plans in its Inflation Report next month.

Democratic leaders and labor activists this week declared it would be illegal for Gov. Arnold Schwarzenegger to slash state workers' salaries to the minimum wage until a budget deal is reached.

But a California Supreme Court decision five years ago indicates otherwise. Instead, it is Democratic Controller John Chiang, with the job of issuing paychecks, who would be snubbing the law if he continues to pay state employees as he has promised. Whether the governor or anyone else can stop Chiang is another matter, but the law seems to leave little room for interpretation.

Three experts in labor law who reviewed the unanimous ruling at the request of the Mercury News agreed that the controller is barred under the state constitution to pay state employees until a budget is enacted. One exception is hourly employees, who are entitled to the federal minimum wage of $6.55 an hour.

"It's a relatively clear cut case," Bill Gould, a professor at Stanford Law School and former chairman of the National Labor Relations Board, said Friday. "This we know from the opinion: He (the controller) cannot make any further payments" of workers' salaries, beyond the minimum wage.

Chiang's answer, in effect: Try to stop me. "Until I have a court order," the controller said in an interview, he will continue to pay employees their full salaries. Schwarzenegger is expected to issue his executive order Monday, and the next round of checks are set to go out at the beginning of August.

The Supreme Court decision in White vs. Davis, issued in 2003, stemmed from a lawsuit filed in the late 1990s in the midst of a budget delay at the time. The Howard Jarvis Taxpayers Association and others challenged whether the state was allowed to make certain payments, including worker salaries, before a spending blueprint was in place.

The lawsuit, like Schwarzenegger's planned executive order, was designed to put pressure on lawmakers to pass a budget. The state constitution dictates that the Legislature approve a budget by June 15, in time for the start of the July 1 fiscal year. But lawmakers - hung up by ideological differences and a requirement that budgets pass with a two-thirds majority - routinely blow that deadline, with few repercussions. "The goal was to make them do their job," said Richard Fine, the lead attorney in the case.

Though the 69-page Supreme Court decision addressed many legal arguments, its conclusion was unequivocal. "State law does not authorize the controller to disburse state funds to employees until an applicable appropriation" - a state budget - "has been enacted," the court stated. Once a budget is in place, the employees must receive back pay.

And to comply with federal law, the court added, during a budget impasse the state must pay hourly workers the federal minimum wage and those who work overtime time-and-a-half pay. Chiang and his chief legal counsel, Rick Chivaro, acknowledged the court's findings. But they cite a claim raised with the court in the lawsuit but not decided: that the state payroll system is unequipped to tease out which employees are entitled to be paid during an impasse and which are not.

"There are system limitations," Chivaro said. "It is not logistically feasible to do this." The controller's stand is likely to be the final say absent another lawsuit. Chiang is elected independently and does not report to the governor, so Schwarzenegger would have to force the issue in court to impose his planned executive order. He has not said whether he would do so.

Were Schwarzenegger or an outside group to sue Chiang, they would almost certainly prevail, the legal experts contacted by the Mercury News said. "I don't see any difference if the case was brought again today," said Miriam Cherry, a labor and employment expert who teaches at McGeorge School of Law. The ruling, she predicted, "would be exactly the same."

The controller "seems to be inviting a Schwarzenegger vs. Chiang lawsuit," added David Rosenfeld, a labor attorney who teaches at the University of California-Berkeley School of Law. It is unlikely the controversy will last long enough for a court to rule. Schwarzenegger - who has not proposed such a pay cut in previous years - is hoping that the mere threat will prod legislative leaders toward an agreement.

Democrats and Republicans remain at odds over whether to close a $15.2 billion deficit primarily with spending cuts or tax increases. The state Senate is slated to vote on a budget plan on Tuesday, but it's unclear whether it will draw any Republican support.

Meanwhile, the clock is ticking. If a budget isn't enacted by early to mid-August, the state may be forced to take out a high-risk loan to pay its bills - with a premium of hundreds of millions of dollars. Incoming Senate President Pro Tem Darrell Steinberg, D-Sacramento, who practiced labor law for years, said it's been a few years since he read the Supreme Court decision at issue. But in his mind, the governor's pay-cut directive comes down to right vs. wrong.

"The court of law is often about equity," Steinberg said, "and it's simply not fair that people who work an honest day don't receive the pay they've been promised."

For the "have-mores" of California, the tax man cometh. Facing a $15 billion budget shortfall, Californian legislators are calling for tax hikes on the rich. That's despite the Golden State already having one of the most progressive tax structures, meaning the wealthy pay much higher rates than the poorest.

Top earners here could face a double whammy if Democratic leaders in Washington succeed next year in rolling back President Bush's tax cuts and allow Social Security withholding on income beyond the current $102,000 cap. Political leaders are zeroing in on the upper echelons of the state's taxpayers because that's where much of the economic growth has taken place in recent years, say analysts.

The strategy isn't without risks: Just as globalization has enriched the elite, it has also increased their ability to relocate if the tax climate gets too uncomfortable. "Structural inequality has been rising at a level we haven't seen since before the Great Depression," says David Gamage, a tax and public-finance expert at the University of California at Berkeley. "And the natural response, both psychologically and economically, is to make the tax system more progressive,"

There's a sense in Sacramento that the state's recurring budget deficit has finally grown so large that it can't be papered over with borrowing and accounting sleights of hand; either spending has to be cut, new revenues tapped, or both. Gov. Arnold Schwarzenegger (R) has proposed expanding the state's lottery and cutting spending.

Skeptical about lottery revenue, the majority Democrats in the legislature responded with a budget plan that includes fewer cuts and a plan to create two additional tax brackets above the current 9.3 percent ceiling. Joint filers making more than $321,000 a year would pay 10 percent; those making over $642,000 would pay 11 percent. These and additional tax increases would bring in $8.2 billion.

Governor Schwarzenegger hasn't ruled out tax hikes, but many of his fellow Republicans in the legislature – who are needed to pass a budget – have signed antitax pledges. They argue for spending cuts and a spending cap. Budgetmakers missed the July 1 deadline. Schwarzenegger is threatening to withhold pay beyond minimum wage for all state employees until the budget gets done. The state Senate plans a budget vote on Tuesday.

If tax increases and rollbacks happen here and in Washington, D.C., Californian millionaires would see combined federal and state income taxes jump from a current 41.7 percent level to 51.4 percent. That's according to William Ahern, spokesman for the Tax Foundation, a pro-growth tax-research group based in Washington.

For high earners, the grass may start to look greener on the other side of California's borders, says Mr. Ahern. Arizona's top rate on income is only 4 percent; Nevada and nearby Washington have no income taxes at all. While California remains extremely attractive to tech barons because of the talent clusters here, he says, advances in telecommunications are eroding that premium on physical proximity.

Others point out that California's overall tax burden is close to the national average, largely because real estate taxes are locked down. If the venture capitalists and tech entrepreneurs were to flee, it would only be to a place of similar economic caliber, says Mr. Gamage. "They are not moving to Nevada.... The difference between California's tax system and [those in] the other states that people would realistically move to are pretty minuscule."

California's major competitor would be New York City, he adds, but income taxes are higher there if local taxes are included. Austin, Texas, may not tax capital income, but it remains a second-tier technology competitor to Silicon Valley, says Gamage. If New York cut taxes, or Austin matured as a hub, then California should worry.

"Major players seem more than willing to pay the cost of living in California, [because] there is a dramatic difference in the economic resources and opportunities" here versus elsewhere, says Gamage. Call it the advantage of big economies."It's much more problematic for smaller states to raise taxes above the level of similar states," says Gamage. "The US is doing fairly well in maintaining its tax base, really because we are so big. California is also."

Indeed, opponents warned in 2004 that the jet set would leave California if the voters approved a 1 percent surcharge on those making more than $1 million a year. The number of tax returns filed from this group, however, rose 37.8 percent between 2004 and 2006, says Jean Ross, executive director of the left-leaning California Budget Project in Sacramento.

"If the [proposed] income-tax increases are permanent, then that would put us considerably out of whack," says Steve Levy, director of the Center for the Continuing Study of the California Economy, a private research foundation in Palo Alto. "People don't move for taxes that are temporary.... And I don't think they will be permanent."

Ilargi: Two weeks after declaring Canada safe from the credit crunch, central bank governor Mark "Forked-Tongue" Carney, of Goldman Sachs lineage, will start handing out Canadian taxpayers’ money to buy paper that has face value only.

The Bank of Canada says it is prepared to accept some of the riskiest assets on the market, giving it more power to fight the credit crisis. For the first time, the central bank will accept as collateral for emergency loans asset-backed securities of the type at the heart of the crisis of confidence that has seized financial markets for the past year.

Governor Mark Carney revealed yesterday in the Canada Gazette how he intends to use new powers granted him by Finance Minister Jim Flaherty in legislation that cleared Parliament in June. It was left up to Mr. Carney to decide which assets would be acceptable to the central bank.

The change aligns the Bank of Canada with other major central banks, including the U.S. Federal Reserve and the European Central Bank, and clears the way for Mr. Carney to more forcefully attack a problem that he says has subsided in Canada for now.

"This is a positive development as it brings the Bank of Canada's powers more in line with that of its peers, and it reduces the risk of further credit market problems in Canada," said Eric Lascalles, an economist at Toronto-Dominion Bank.

Mr. Carney indicated frustration during parliamentary testimony earlier this year as the Fed and others took extraordinary steps to inject liquidity into frozen credit markets, accepting a wide range of assets as collateral in return for billions of dollars worth of short-term loans. Canada's central bankers were left to fight the fire with what amounted to a garden hose by comparison.

That's because Canadian law forbade the central bank from accepting anything but the safest of assets in return for emergency loans. In his testimony to Parliamentary committees, Mr. Carney indicated the credit crisis was worse than it needed to be as a result of the limits on the central bank's discretion. The heads of Canada's biggest banks felt the same, and lobbied Ottawa to expand the Bank of Canada's powers.

At emergency auctions for short-term loans, the central bank said it will now accept collateral commercial paper, including asset-backed commercial paper, with a term of maturity of no more than 365 days, and other Canadian-dollar, asset-backed securities.

The central bank also will accept securities issued or guaranteed by the federal government; provincial governments; the U.S. government; and any state in the Organization for Economic Co-operation and Development.

The list of assets also includes Canadian-dollar corporate and municipal bonds, Canadian-dollar bankers' acceptances with maturities of no more than 365 days and Canadian-dollar promissory notes with a term to maturity of no more than 365 days.

Ilargi: Canadian pension funds look hell-bent on throwing away their funds, be it on a bunch of poles and wires, re: BCE, or a piece of concrete, as in this case.

Brookfield Properties Corp. has sold its stake in one of the two Toronto skyscrapers that make up its flagship Brookfield Place, a surprise deal that set a new price record for Canadian office space.

Brookfield said Friday it sold its half-interest in the TD Canada Trust Tower to co-owner OMERS Realty Corp. for $721 a square foot. OMERS, part of the Ontario Municipal Employees Retirement System, acquired full ownership after triggering the shotgun clause in its partnership agreement with Brookfield, a commercial property company based in New York.

The move led to rumblings that friction between the partners may have sparked the deal, but this wasn't the case, said Tom Farley, president and chief operating officer of Brookfield's Canadian commercial operations.“Absolutely not. Brookfield and OMERS have a terrific relationship.

The building was and is 100-per-cent leased, OMERS decided they wanted to own 100 per cent … and we found the price to be attractive,” Mr. Farley said. If Brookfield had not wanted to sell its stake, it would have had the option of buying OMERS' stake under the partnership agreement, he added.

The record price paid for the 51-storey tower built in 1990 suggests demand for top quality buildings remains strong despite fears of a spreading real estate slump, said Michael Smith, analyst at National Bank Financial.“This sets a new benchmark price for rare, trophy assets, which simply don't come on the market that often,” he said.

The next highest recorded price paid for a large office building was $625 a square foot for the Harry Hays Building in Calgary in 2007, according to data from CB Richard Ellis Ltd. Friday's purchase comes at a time when Canada is experiencing its greatest shortage of office space in 10 years.

However with 3.7 million square feet in development in Toronto alone, vacancy rates in the city are expected to pop to 10 to 12 per cent in the next two years from 4.4 per cent in the second quarter of 2008, according to CB Richard Ellis.

The market will still have strong fundamentals, and the deal confirms Brookfield Place's position as a premier asset in the downtown core, said Paul Morse, senior managing director of office leasing at Cushman & Wakefield LePage.

Brookfield still owns 100 per cent of Brookfield Place's larger Bay Wellington Tower, 50 per cent of the complex's shared retail space and 56 per cent of the parking, Mr. Farley said. “If in fact we had sold out our entire interest in the property I would have had mixed feelings, but we still have a significant ownership interest in one of the best properties in Canada, if not North America,” he said.

Brookfield's gross proceeds from the sale of $425-million could be used for a variety of purposes, including acquisitions in North America, Mr. Farley said. The funds could also be used to buy back shares or pay down debt, he added. Mr. Smith said the purchase makes sense strategically for OMERS, which has already been doing extensive renovations at the Royal Bank Plaza across the street from Brookfield Place.

Ilargi: Reggie Middleton has done a detailed in-depth analysis of Goldman Sachs, the brightest light left on Wall Street, so far. Here’s a small part of it. Recommended reading.

Until now Goldman Sachs has withstood the ripples effect of plummeting financial and capital markets, and widespread losses and write downs in the US mortgage backed securities market.

Almost all of its peers including Merrill Lynch, Morgan Stanley and Lehman Brothers posted huge losses off write-downs in their trading and investment portfolios in the first two quarters of 2008 while GS has been able to contain its losses off relatively better quality of its assets, and managed to offset these from gains off its more favorable derivative positions.

With problems in the financial markets expected to continue beyond 2008, we expect the operating performance of GS to be impacted by the deteriorating global macroeconomic environment given its high exposure to level 3 assets (197.6% of tangible shareholders equity) and high leverage (adjusted leverage of 14.7x).

In addition, a continuous rise in its VaR (a measure of potential loss in value of trading positions due to adverse market movements) as a result of increased volatility and widening of spreads in the underlying investment assets could dampen GS trading revenues (currently being the highest amongst its peers group and comprising nearly 30% of its revenues before interest expense).

Moreover, we believe that lackluster M&A business volumes could further lead to softening of investment banking revenues in the near-to-medium term. Based on our relative valuation of GS vis-à-vis its peer group, we have arrived at a per share valuation of GS at $144.3, implying a potential downside risk of 21.1% from its current per share price of $182.8.

II. Key points

Banks' valuation likely to be impacted by continuing tumbling of the US financial sector : Continuing financial crisis, further reinforced by collapse of Freddie Mac and Fannie Mae, is likely to hit US banks' valuation as widespread negative sentiments continue to grip the markets. The dwindling investor confidence is reflected by record high corporate bond spreads and plummeting price multiples.

Banks including investment banks like Goldman Sachs are likely to be adversely hit as the risk attached to such businesses are expected to get re-priced. In addition, the specter of significantly increased regulation is coming down the pike, compressing leverage, hence margins in an attempt to quell the potential for systemic financial market disruption.

GS' high market risk reflects the bank's high stakes on the fate of the global financial markets : GS' relatively high and consistently rising trading VaR and its increased exposure to other market risks (not represented by VaR) indicate increased volatility that GS trading portfolio is exposed to. The current volatile financial and capital markets will certainly test GS' ability to withstand probable increases in losses in its trading portfolios in the coming periods.

High financial risk reflected by adjusted leverage ratio : GS scores relatively low among its peers in terms of the adjusted leverage ratios, representing higher financial risk. Although the second quarter saw a noticeable fall in GS' adjusted leverage ratio to 14.7x from 18.6x in 1Q2008, following a $100 bn trim down in total assets, the ratio still remains higher than those of its peers.

Massive off-balance sheet exposure of probable losses from unconsolidated Variable Interest Entities (VIEs): With GS' maximum exposure to loss in unconsolidated VIEs standing at $22.2 billion, representing nearly 50% of the total shareholder's equity, compared to similar figures of 26% and 4% for Morgan Stanley and ML, respectively, GS assumes a far higher off-balance sheet risk. Further, the exposure is in some of the riskier and troubled asset categories like CDOs, CLOs and real estate securities, held indirectly through its unconsolidated VIEs, which is likely to dent GS' performance in coming periods.

Illiquid level 3 assets forming a relatively higher proportion of adjusted total assets : With a relatively high level of level 3 assets as percentage of total assets and as percentage of shareholders' equity compared to its peers, GS could run risk of higher write downs, particularly on mortgage backed securities, as spread continue to widen and investors appetite for risk continue to decline.

Although these ratios witnessed a decline in the second quarter of 2008 due to transfers to level 2 assets, GS continue to have sizeable exposure in high risk Alt-A and subprime residential mortgage-backed securities.

The exception to this would be those proprietary and client driven volatility trading desks that attempt and may succeed at benefitting from extremes in volatility. This is a dual edged blade though, for these trading strategies often carry higher inherent risks, higher VaR, and lower risk adjusted returns than the more plain vanilla businesses. Basically, when the doo doo hits the fan in these businesses, it tends to splatter farther than normal - splashing any business units that may be standing around.

GS' asset quality has declined over the past two quarters : The proportion of non-investment grade securities in GS' trading and investment portfolio has increased over the last two quarters. Though GS' liquidity position remains strong, exposure to riskier assets raises concerns about write downs in the near future. This is expected to be exacerbated in the very near future due to the fact that there are no longer any insurers who have, and who are wrapping derivative securities that have a AAA or Aaa rating that is not on negative watch for prospective downgrade.

This translates into a literal dearth of high end investment grade derivative instruments that relied on monoline insurance wraps. It also means that the implicit leverage inherent in overcollateralization (a method of pursuing a higher credit rating for security by pledging more than 100% collateral to a deal) may very well come home to roost in unexpected ways.

31 comments:

el pollo
said...

I have been reading reviews of James Kunstler’s books on Amazon this morning. Came to the conclusion from the reviews that his novel really sucks artistically , that he should have stuck to essays, and that it is not worth reading. But it brings to mind the following question – how bad is the collapse really going to be? Ilargi and Stoneleigh always stay with their A game as economists, but they do indicate that it will be in the same league as the Great Depression of the 30’s or worse, and a recovery would be measured in a decade or decades. Kunstler basically sees a total collapse of the entire technological infrastructure where we fall back very rapidly to a technological level of life similar to the time of the Civil War. I am somewhat skeptical that we could really lose our knowledge base that rapidly.

I also hold Nouriel Roubini in high esteem. He falls more into the Depression Lite school. He maintains adamantly that we will be facing a downturn substantially less severe than the GD and that the economies will start to recover in a few years. He sees housing down 40% as opposed to I&S who are looking at 80-90%. For my money, I think I&S are far closer to the mark, but Roubini is neither a shill nor a dummy; he has a proven track record of accurate predictions, and so his evaluations should be treated with respect.

1) I have been reading Kunstlers book every now and then when I'm stuck at the mall for some reason and quite like it. Go read a few chapters at the big box. The wait list at the library is so long. It reads a lot better than his essays IMO. Kind of 'The Road - lite'.

2) I haven't seen a CHIP reverse mortgage advert for a while on newsworld. Canucks know the jingle - 'Wouldn't it be nice?'. Is a long term collapsing housing market maybe the best time to utilize a reverse mortgage?

I-Sounds like I should put my assets into a good can opener and canned goods. Those T bills I just bought will be very worthless.EP-I seem to buy into I&S's worst case scenarios quite easily. Because I can't seem to logically disagree with what they're telling me. Anyone who understands 4th grade math, should understand today's intro by I. My husband disagrees with me. He denies that things could possibly get so bad in America. And, is it possible that Roubini is toning down his true expectations to make them more acceptable to GQ Public? I still read smart people's expectations of inflation as a result of this F/F bailout and then I have one synapse that goes off wondering if that could be possible. But then I come back to reality.Everyone asks what to do? It is finally becoming obvious to me. The little things you can do as a person, for yourself, your family and for your community are it and will count. There lies our power. I finally contacted my senators this week. Finally.TTC said it, too. "Doing better will have to begin at the individual level."A

I would like to learn more about the practical economics of the Great Depression. Can anyone recommend a book? Well written and not soporific, with the economics explained for non-economists. With legal and social questions dealt with. For example, how exactly did the federales confiscate individual's gold? What happened to safety deposit boxes in failed banks? Did bankrupt stock brokers steal their clients' bonds. Stuff like that. Anyone?

El Pollo- how bad is it going to get? We really can't know. But the people who scoff and say "oh, it couldn't get THAT bad" haven't studied their history.

The cutting edge of current doom-sayers are mostly piping up with "It's going to be another Great Depression!" - nobody's laughing at them anymore, though they were just a few months ago.

I think there's actually the chance it could be worse- more The Fall of Rome kind of thing. Back then, one of the contributing factors was poor humans scavenging lead from the municipal water systems and aqueducts. Sound anything like the people currently stripping copper from remote agricultural irrigation systems- and empty houses?

Do you know how to make plastic? How about china and pottery? How to make a functional kiln? How to gather the right materials for concocting a useful glaze? How to glaze the pottery? How long and at what temperature to fire it to make the glaze work properly? That's just one tiny item in our modern lives.

As for inflation, when things get bad enough that is precisely what they will try to do but it can't work.

As for the recovery, that depends on factors we've never seen before. We face massive resource crises across the board. The last great depression occurred in an era of rising resource availability. This one will occur in an era of declining availability. And lastly, climate change continues to accelerate at rates most people do not understand.

I said that I don't personally agree with Roubini's Depression Lite predictions but they should be evaluated with due consideration. I also requested recommendations for good books on the Great Depression. Now I feel like the Great Satan :-)

Greyzone,

I am a chemist by academic background ( Masters ) and a professional plumber by trade with a more than passing acquaintance with the other building trades. I could not go out to the back 40 this afternoon and find and concoct the ingredients for a well glazed pot. With all the Rastafarians on my island, finding well cultivated pot might be easier.

If I were a SWF I would notice that the US gov't changes the rules whenever things aren't going their way. I would find it difficult to assess risk in such an environment.When Carney gets the Cdn gov't to change something as sacred as the Banking Act I would reassess risk in Canada as well. But then I'm not a SWF. Perhaps they price in the risk?How can there be productive,sustainable business when the law is either not enforced or rewritten? Note as well the increase in immunity from prosecution to various gov't agencies. I don't think there is any limit on pardons that Bush can issue when he ends his presidency?

“Normally moving money out of a government in excess of the total taxes that year would be hard to do. However, I could use securities fraud. I could issue a lot more government securities and government agency (like mortgage agencies) securities than I recorded on the government books and sell them abroad. I would have to make sure not to publish audited financial statements as that would increase the liabilities of engaging in this kind of fraud. It would help a lot if I could pool mortgages and sell government agency securities to finance those mortgages in a process where the same mortgage could be sold many times into the same pool.” Mortgage Market Musing

Few weeks ago, I have read the interesting article. It can be googled out, when you'll enter "The United States Is In Deep Doodoo!"

Here is written:But Nixon had to collateralize that debt somehow, and he hit upon the plan of quietly setting aside huge tracts of American land with their mineral rights in reserve to cover the outstanding debts. But since the American people were already angered over the war in Vietnam, Nixon couldn't very well admit that he was apportioning off chunks of the United States to the holders of foreign debt. So, Nixon invented the Environmental Protection Agency and passed draconian environmental laws which served to grab land with vast natural resources away from the owners and lock it away, and even more, prove to the holders of the foreign debt that US citizens were not drilling. mining, or otherwise developing those resources. From that day to this, as the government sinks deeper into debt, the government grabs more and more land, declares it a wilderness or "roadless area" or "heritage river" or "wetlands" or any one of over a dozen other such obfuscated labels, but in the end the result is the same. We The People may not use the land, in many cases are not even allowed to enter the land.

This is not about conservation, it is about collateral. YOUR land is being stolen by the government and used to secure loans the government really had no business taking out in the first place. Given that the government cannot get out of debt, and is collateralizing more and more land to avoid foreclosure, the day is not long off when the people of the United States will one day wake up and discover they are no longer citizens, but tenants.

Is it the truth or a hoax?!Are the numbers and facts in that article correct or made up?

Next 2 banks dead in few last weeks, how long can the rest of US economy work in these conditions??

Unrepentant cowboy just posted this link over on the latoc forum, maybe some of you have seen it.

http://www.shadowstats.com/article/292

I'm not an economist and I wont pretend to be , but I think the article is basically saying that Bernanke (in cahoots with the Treasury I imagine) will start printing enough currency to stop the deflationary trend the U.S. is now in. Is it possible that they could try to secretly "helicopter drop" this money into the economy and thats why the M3 is no longer publised (ie. its anybodys guess now how much U.S. money is officially in circulation). Just a boneheaded idea...

but if they'll print new money, and they won't be covered by the silver or gold or by the value of things USA can sell abroad, it will decrease the value of any US Dollar that is circulating in the world. The'll become the priceles papers soon.

The dollar had defacto oil backing after America dropped gold convertibility, creating the Environmental Protection Agency to tie up land for collateral was not necessary. Nixon was pragmatic, for instance if drug treatment programs had better success with addicts than a war on drugs response then treatment got the go ahead; this was later reversed by police and prison factions. U.S. provided the security muscle and the Saudis provided the oil backing for the dollar as a reserve currency.

So who thinks that the provision for credit card transactions to be reported to the IRS in the FF bailout bill would be to collect taxes from web based commerce such as ebay, amazon, etc.? If all credit card expenditures could be taxed with a national sales tax, that could help fund Mozillo, Raines, and friends debts for a while. Or, maybe someone here knows why the provision is in the bill.Kalpa

A thumbs up for Raul Castro!In a BBC article to-day the Cuban leader warns his people of the economic crisis as follows:"...the inevitable consequences of international crisis to our people...we must explain to our our people the difficulties and thus prepare them to deal with them."The only world leader to my knowledge to speak truthfully. I sure wish my gov't was giving a head's up to my people!

Was looking for information about bond rates during the depression the other day and found in passing a three parter about the depression. I haven't read other than the first paragraph or two so wont rate it. Incidentally, you being a chemist and living on an island which with those Rastafarians seems to indicate an island in salt, not fresh water, as your home? You would have no trouble at all obtaining salt to use to salt glaze pottery, though I hope not from your 'back 40'.

The Right will try to shift the blame for this Depression like they always have for the last Depression. Why does no one point out that during the sainted "laissez faire" era the US had one or two depressions, also called panics, every decade? That's what the gold bugs and the Friedmanites and Reaganites want to bring back? No wonder the workers were marching in the street and building bombs back then.

scandia said:"A thumbs up for Raul Castro! [..]The only world leader to my knowledge to speak truthfully. I sure wish my gov't was giving a head's up to my people!"

After enduring a US boycott for fifty years or so and the loss of Soviet economic support, what people are better prepared for the world to come?Cuban medical schools are training doctors in Africa now; in the future, Cuba may be an example for all of us.

Here's hoping the mob and their casinos can be kept out of La Habana until defending against them doesn't matter any more.